Why did so many successful startups come out of PayPal? Answered by Insiders | Hacker News Reader

Why did so many successful startups come out of PayPal? Answered by Insiders

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173 pointsvincentchan29 comments

A lot of early PayPal founders probably cashed out to the tune of a million or two bucks.

That's not enough money to retire, but it is enough money to take a risk on your own startup.

I read the paypal story on Founders at Work. It was one of the difficult ones. If the Russian founder cashed out with 1-2 million IMHO it would be too little for all he's been through in that story.

Even if I knew Paypal would become a success when it started, I still wouldn't believe it.

They've gotten all the abilities of a bank without any of the responsibilities, and I still think the possibility of changing laws still hangs over them like the sword of Damocles.

They've gotten all the abilities of a bank without any of the responsibilities

Last I checked, they can't do fractional-reserve banking (ie they can't loan out more money than they have on-hand or as some people like to say, "print money"). To me, this is the biggest power that a bank has, and what separates a bank from every other institution. What exactly did you mean by your statement? What "abilities" are you referring to?

Is that actually true? They retain the full value of all PayPal account balances as 100% cash reserves? I always assumed they were playing the float, at least by rolling it into short-term instruments.

As I understand it, fractional reserves doesn't mean that banks "loan out more money than they have on-hand". They loan out most of the money that they have on hand, and keep a small fraction in reserve. However, they end up "printing money" because the people who receive the money from those loans immediately put it back in the bank, thus the total credit and debits grows to something like 1/fr, where fr is the fraction that gets held in reserve.

I doubt Paypal invests their deposits (or if they do, they only put it in cash-equivalents), unlike banks which have the privilege of taking on short-term liabilities while they only hold long-term assets and a small amount of cash.

>fractional reserves doesn't mean that banks "loan out more money than they have on-hand".

That's exactly what it means. When you go to the bank and ask for e.g. $100k to buy a house they make an account entry to first create this money (assuming doing so wouldn't put them past their reserve threshold) and then give it to you. The money only exists because you've promised to pay it back.

Put another way, the loan money they're giving you is like they went into the future, took all the money you paid into the loan account, deducted their fees, etc. came back to today and gave you what was left over.

If you're referring to Max Levchin, he was a key early founder and made a lot more than that. But there were probably HUNDREDS of later employees who made more than about a million and THAT'S why PayPal spawned so many startups.

The Magic of Believing

> But the executive team made up for nonmastery of details with unwavering vision, which inspired the troops. At his San Bruno, Calif., office, YouTube CEO Hurley remembers his PayPal days as an education in business. When he arrived in California with a degree in art from Indiana University of Pennsylvania, building a successful company seemed like something other people did.

"You never think it could happen to you," says Hurley. "But seeing Peter and Max and the guys come up with ideas and seeing how to make things work gave me a lot of insight. You may not have a business degree, but you see how to put the process into effect. The experience helped me realize the payoff of being involved in a startup."

http://money.cnn.com/2007/11/13/magazines/fortune/paypal_maf...

I find it more impressive they were able to manage a culture full of alpha dogs and make a productive business out of it. I wouldn't consider this type of culture as one to implement in my own company.

From what I read in the article, the reason they were able to do this is because they were able to maximize both the autonomy of groups/individuals while also maximizing interchange and multiplication of value between them. (I hesitate to use the word synergy as it has become a cliche, but that would be a correct term.)

The top-down corporate autocracy can often maximize synergy, but do so at the cost of individual/group autonomy. The free market maximizes autonomy, but does so at higher costs of transactions between groups. The wildly successful company can maximize both autonomy and synergy.

That's what the data-driven culture is for.

Google is similarly filled with smart, opinionated people, though Google culture seems far more team-oriented than PayPal does. The way we manage differing opinions is to run an experiment. Instead of saying "Okay, we're doing it this way," and letting the office politics determine what "this way" means, we say "Okay, what experiment could we run that would indicate whether this is a good idea?" Then we go off and run the experiment, and usually the data is clear enough that even the idea's most opinionated proponents and detractors end up being convinced.

"Strong opinions, loosely held" is a pretty good mantra for a productive team. A culture full of alpha dogs isn't necessarily a bad thing as long as they all respect the data.

"Go to work each day willing to be fired" was a great line. I've noticed that many really successful engineers seem to have that attitude where putting out a quality product is their primary focus, where others may tend to be more worried about consensus and goodwill.

The success of PayPal itself is pretty phenomenal when you consider what they were going up against in the traditional credit card industry.

For those curious souls looking for a deeper dive on the early days of Paypal, check out the fantastic Robert Cringely interview with Max Levchin on NerdTV (See episode #2 near the bottom) http://www.pbs.org/cringely/nerdtv/shows/

Interestingly the second quora link he quotes is explicitly marked "Not for reproduction": http://www.quora.com/What-strong-beliefs-on-culture-for-entr...

That being said, building a culture like that requires quite a lot of insight and Paypal must've been an exciting place to be back then...

This entire blogpost is a regurgitation of what is in those quora links. Is there even anything original here?

shrug Aggregation isn't bad in and of itself, especially since Quora just opened to the public, but he probably shouldn't reproduce something explicitly marked otherwise.

I love this part the most -- "you’d do your homework first and then come to the table with - 35% of our [insert some key metric here] are caused by the lack of X functionality…"

Meetings would be so much more productive if everyone operated like this.

On the other hand,

"When a company is filled with engineers, it turns to engineering to solve problems. Reduce each decision to a simple logic problem. Remove all subjectivity and just look at the data. Data in your favor? Ok, launch it. Data shows negative effects? Back to the drawing board. And that data eventually becomes a crutch for every decision, paralyzing the company and preventing it from making any daring design decisions."

http://stopdesign.com/archive/2009/03/20/goodbye-google.html

I think that complaint work where much better if focused on a less successful company. Do you know of any large but failing companies that use this approach?

Read The Innovator's Dilemma for a number of examples of how following the data lead companies off of nasty cliffs. (The follow-up, The Innovator's Solution, had a lot more useful detail.)

Sounds like a fascinating way of working, if not high-stress. It doesn't say how many hours/week their staff were working.

"but either individual heroes or small, high-trust teams more often than not found ways to deliver projects on-time."

I'm not sure to read that as if they are finding ways "out of hours" and on their own time.

I think the crucial reason is only that most people in paypal made tons of cash and they generally hired smart people.

Everything else this post mentions is probably reading too much between the lines and is more similar to the over-romanticising commonly associated with fluff journalism pieces.

"If you want to make an apple pie from scratch, you must first create the universe." -- Carl Sagan

Imagine John DeLorean meeting with PayPal instead of the FBI.

So many? isn't youtube the only one with a successful exit? I know linked in probably will, but the rest are unproven.

I guess what I mean by success is not only about profitability. I consider that changing the world positively in a large scale is a success. So I think kiva, spacex, yelp and yammer are all successful startups/organizations.

I think this is the best content on Quora to date.

Some interesting ideas here but wouldn't want to post it up on the wall as the road map to success.

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